25-06-10

Up to Dutch Court to Prohibit Online Games of Chance of English Ladbrokes at Lotto's Request

Up to Dutch Court to Prohibit Online Games of Chance of English Ladbrokes at Lotto's Request

European Court of Justice, 3 June 2010, C-258/08 (Lotto / Ladbrokes)
The Netherlands have a very restrictive national gaming policy. Offering games of chance in the Netherlands is only allowed with a license based on the Betting and Gaming Act (Wet op de Kansspelen, "WoK") The same is true for games of chance on the internet, for example if the gambling website is directed at Dutch visitors or is advertised in the Netherlands. Although this policy is intended for the protection of consumers and minors in particular, Dutch license holders like De Lotto have been trying for years with this policy to keep foreign online gaming providers, including the British Ladbrokes, off the Dutch market. Until now they have always succeeded.

Background of the Dispute

Ladbrokes offers a number of mainly sports-related games of chance on their internet site , also to Dutch people. After a very critical interim judgment (in Dutch), the Court of Arnhem eventually held in a judgment of 31 August 2005(in Dutch) that De Lotto suffers damage as a result and has imposed blocking measures on Ladbrokes to make gambling on Ladbrokes' website impossible for Dutch people. This judgment was upheld on appeal by the Court of Appeal of Arnhem in a judgment of 17 October 2006(in Dutch). Ladbrokes then lodged an appeal in cassation to the Supreme Court of the Netherlands. In a ruling of 13 June 2008(in Dutch) the Supreme Court referred preliminary questions to the European Court of Justice ("ECJ"), because prohibiting a service of another EU Member State may be contrary to the free movement of services, which the former Article 49 of the EC Treaty (now Article 56 of the TFEU) prohibits.

Free Movement of Services

Ladbrokes has a valid gaming license in England, but is not allowed by the Dutch Court to offer these services in the Netherlands. The ECJ had to answer the question whether this restriction of the free movement of services within Europe was justified or not. Last year, in a similar Portuguese case (BWIN, in Dutch), the ECJ already gave a ruling to the disadvantage of operators of games of chance from other EU Member States. There have been discussions for years on this topic following the Gambelli judgment of the ECJ from 2003. In the Gambelli case, the ECJ ruled that Member States only have limited room to impose restricting measures on operators of games of chance from other EU Member States. The national courts have to take the following into account when testing whether the measures are justified: the measures must be applied without discrimination; they must be suitable for achieving the purposes pursued; and they must not go beyond what is necessary. Furthermore, the ECJ observed that a Member State cannot on the one hand incite consumers to take part in lotteries, games of chance and bets in order to fill the national treasury, while on the other hand it relies on public order to justify the current restrictive measures. The Member States are free to determine purposes of public interest, but the measures they take in this respect must be aimed consistently at those purposes. This is the so-called hypocrisy test that the judgment contains. Read more about the Gambelli judgment here(in Dutch).
In this Lotto / Ladbrokes case, the ECJ considers it a fact that keeping gambling services out of EU Member States constitutes a restriction of the free provision of services in the Netherlands. However, such a restriction may be justified by the purpose of the arrangement, for example in the case of consumer protection, the prevention of fraud or the general need to preserve public order.
It is then also up to the national courts to apply the hypocrisy test: "It is for the national court to determine whether unlawful gaming activities may constitute a problem in the relevant Member State and whether the expansion of authorized and regulated activities would be liable to solve such a problem, and whether that expansion is on such a scale as to make it impossible to reconcile with the objective of curbing such addiction.".
An important starting point here is the fact that there is no harmonization within the EU for the offering games of chance through the internet. This means that all Member Sates may apply their own rules. Furthermore, the ECJ considered that online games of chance involve a more substantial risk of fraud by providers because of the lack of direct contact between consumer and operator.

Conclusion

This judgment does not automatically mean that Ladbrokes must be kept out of the Netherlands. It does mean that the Dutch courts are free to express an opinion on this. Although the hypocrisy test has not been abandoned, the ECJ did distance itself from it a little further by leaving this issue also to the national courts. The ECJ never gives an opinion on facts, but this ruling means that the national courts themselves will have to judge national policies and possible shielding of the market within the EU. In any case, things do not look well for Ladbrokes; after all, the Supreme Court does not pronounce an opinion on facts either, and in the judgments in various instances - including the Court of Appeal of Arnhem - Ladbrokes was found to be acting unlawfully vis-à-vis De Lotto by organizing games of chance in the Netherlands or promoting participation in such games, although Ladbrokes does not have a Dutch license to do so. Furthermore, it was held that De Lotto has the right as a licensee to invoke the justice of its national legislation, on which the license is based.